SOURCE: RAE Systems

RAE Systems

March 05, 2009 16:05 ET

RAE Systems Reports Fourth Quarter and Year-End 2008 Results

Full Year 2008 Revenue Increased 5% Over 2007

SAN JOSE, CA--(Marketwire - March 5, 2009) - RAE Systems Inc. (NYSE Alternext US: RAE), a leader in delivering innovative sensor solutions to serve industrial, energy, environmental and government safety markets worldwide, reported results for the fourth quarter and year-ended December 31, 2008.

Fourth Quarter 2008 Financial Results

For the fourth quarter of 2008, RAE Systems revenue was $24.0 million, compared to $27.5 million for the same quarter in 2007. For the fourth quarter, the Americas contributed 36 percent of total revenue, Asia contributed 50 percent and Europe contributed 14 percent. Gross margin for the quarter was 44 percent, compared with 51 percent for the same quarter of 2007.

During the fourth quarter, the company recorded a $3.3 million non-cash goodwill impairment charge and $0.6 million of costs associated with the previously announced Foreign Corrupt Practices Act (FCPA) investigation. The net loss for the fourth quarter of 2008 including the aforementioned charges was $4.9 million or $0.08 per share, compared with a net loss of $7.5 million or $0.13 per share for the fourth quarter of 2007.

Full Year 2008 Financial Results

For 2008 RAE Systems reported revenue of $95.4 million, compared to $90.8 million in 2007, representing a five percent year-over-year increase. For the full year gross margin remained at 51 percent for both 2008 and 2007.

In addition to the non-cash goodwill impairment charge of $3.3 million during the fourth quarter, the company recorded $4.0 million in expenses associated with the previously announced FCPA investigation. Combined, these charges amounted to eight percent of revenue. For the full year, the net loss, including the $7.3 million in aforementioned charges, was $7.2 million or $0.12 per share, compared with a net loss of $14.7 million or $0.25 per share for 2007.

Robert Chen, RAE Systems president and chief executive officer, said, "In 2008, while operating in a difficult economy, we grew our installed base and expanded our markets from 85 countries to 95. We have strengthened our senior management team in China. Recurring revenue from our installed base is increasing, and we delivered quarterly and annual revenue of $24.0 million and $95.4 million, respectively. For the full year, we maintained annual gross margins of 51 percent and we reduced our controllable operating expenses. Had it not been for our FCPA investigation expenses and a charge for impairment of goodwill the company would have been profitable for the year. We are confident of our position in the markets we serve, and we believe we can match our 2008 revenue performance in 2009, with the possibility of a modest year-over-year improvement."

2008 Business Highlights

--  The company's two largest orders for the year were awarded by:
    --  The United States National Guard Civil Support teams for AreaRAE
        Steel to upgrade their wireless gas and radiation sensor networks,
        and
    --  The Beijing International Airport in preparation for the 2008
        Beijing Olympics.
--  Secured first orders for MeshGuard from major oil exploration firms.
--  Won awards for other energy specific products from Bahrain, Brunei,
    Canada, China, Germany, Indonesia, Kuwait, Mexico, Singapore and the
    United States.
--  Continued to secure orders from first responders in China, Germany,
    Japan, Kuwait, Spain and Vietnam, as well as, US municipalities for the
    wireless AreaRAE and other handheld products.
--  Launched eight new products:
    --  Four new volatile organic compound (VOC) monitors, three of which
        include Bluetooth wireless interfaces for data management:
        --  The MiniRAE 3000 for general purpose VOC measurement;
        --  the ppbRAE 3000 for parts per billion VOC measurement;
        --  the compound specific UltraRAE 3000 for benzene measurement;
            and
        --  the MiniRAE Lite.
    --  QRAE 2 Pumped, 4-gas monitor for OSHA and ATEX compliance driven
        confined space entry.
    --  RAE Link 3, the new wireless modem/repeater to increase the
        flexibility of AreaRAE, MiniRAE 3000, ppbRAE 3000, MultiRAE and
        other wirelessly enabled products.
    --  ToxiRAE 3, the next generation single gas monitor, and the AutoRAE
        Lite a fast, single gas, calibration and bump test station.

About RAE Systems

RAE Systems is a leading global provider of rapidly deployable sensor networks that enable customers to identify safety and security threats in real time. Products include disposable gas detection tubes, single gas personal monitors, multi-sensor chemical detection monitors, photoionization (PID) monitors for volatile organic compounds (VOCs), wireless gas detection systems, and radiation monitoring networks for energy production and refining, industrial and environmental safety, and public and government first responder security sectors. RAE Systems' products are used in 95 countries by many of the world's leading corporations and by many U.S. government agencies. For more information about RAE Systems, please visit www.RAESystems.com.

Safe Harbor Statement

This press release may contain "forward-looking" statements, as that term is used in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, without limitation: expressions of "belief," "anticipation," or "expectations" of management; statements as to industry trends or future results of operations of RAE Systems and its subsidiaries; and other statements that are not historical fact. These types of statements address matters that are subject to risks and uncertainties, which could cause actual results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, the general economic and industry factors, the resolution of issues associated with the Company's Foreign Corrupt Practices Act, investigation and receptiveness of the market to RAE Systems and its products. In addition, our forward-looking statements should be considered in the context of other risk factors discussed in our filings with the Securities and Exchange Commission, including but not limited to our annual report on Form 10-K and Form 10-Q filings, available online at http://www.sec.gov. All forward-looking statements are based on information available to the company on the date hereof, and the company assumes no obligation to update such statements.

                             RAE Systems Inc.
                       Consolidated Balance Sheets
             (in thousands, except share and par value data)
                                (unaudited)

                                               December 31,   December 31,
                                                   2008           2007
                                               ------------   ------------
ASSETS
Current assets:
  Cash and cash equivalents                    $     14,845   $     15,906
  Trade notes receivable                              1,870          2,793
  Accounts receivable, net of allowances of
   $3,472 and $2,060, respectively                   20,961         22,749
  Accounts receivable from affiliate                    100             21
  Inventories, net                                   17,604         17,542
  Prepaid expenses and other current assets           4,991          2,930
  Income taxes receivable                               895          2,069
                                               ------------   ------------
      Total current assets                           61,266         64,010
                                               ------------   ------------
Property and equipment, net                          14,976         12,258
Intangible assets, net                                3,342          3,827
Goodwill                                                  -          3,143
Investments in unconsolidated affiliates                467            425
Other assets                                          1,124          1,680
                                               ------------   ------------
  Total assets                                 $     81,175   $     85,343
                                               ============   ============

LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
 ENTITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                             $      6,387   $      6,071
  Accounts payable to affiliate                         382            411
  Payable to Fushun shareholder                          64            609
  Bank lines of credit                                2,584          2,618
  Accrued liabilities                                12,318         12,098
  Notes payable to related parties, current           1,329            191
  Income taxes payable                                  425            674
  Deferred revenue, current                             631            488
                                               ------------   ------------
      Total current liabilities                      24,120         23,160
                                               ------------   ------------
Deferred revenue, non-current                           685            514
Deferred tax liabilities, non-current                    83            277
Deferred gain on sale of real estate                  5,079          5,794
Other long-term liabilities                           1,292          1,487
Notes payable to related parties, non-current         1,219          2,370
                                               ------------   ------------
      Total liabilities                              32,478         33,602
                                               ------------   ------------

MINORITY INTEREST IN CONSOLIDATED ENTITIES            5,481          5,385

SHAREHOLDERS' EQUITY:
  Common stock, $0.001 par value, 200,000,000
   shares authorized; 59,443,914 and 59,171,980
   shares issued and outstanding, respectively           59             59
  Additional paid-in capital                         62,549         60,957
  Accumulated other comprehensive income              6,555          4,135
  Accumulated deficit                               (25,947)       (18,795)
                                               ------------   ------------
      Total shareholders' equity                     43,216         46,356
                                               ------------   ------------
      Total liabilities, minority interest in
       consolidated entities and shareholders'
       equity                                  $     81,175   $     85,343
                                               ============   ============


                             RAE Systems Inc.
                  Consolidated Statements of Operations
                  (in thousands, except per share data)
                              (unaudited)

                                  Three Month Ended        Year Ended
                                     December 31           December 31,
                                --------------------  --------------------
                                   2008       2007       2008       2007
                                ---------  ---------  ---------  ---------
Net sales                       $  24,022  $  27,513  $  95,383  $  90,836
Cost of sales                      13,528     13,548     47,168     44,428
                                ---------  ---------  ---------  ---------
Gross profit                       10,494     13,965     48,215     46,408
                                ---------  ---------  ---------  ---------
Operating expenses:
  Sales and marketing               5,429      8,111     21,427     25,434
  Research and development          1,843      2,659      6,665      7,973
  General and administrative        5,283      4,350     22,864     17,767
  Reduction of goodwill             3,348          -      3,348          -
  (Gain) loss on abandonment of
   lease                                -          -          -       (595)
                                ---------  ---------  ---------  ---------
       Total operating expenses    15,903     15,120     54,304     50,579
                                ---------  ---------  ---------  ---------
Operating loss from continuing
 operations                        (5,409)    (1,155)    (6,089)    (4,171)
Other income (expense):
  Interest income                      51         17        173        162
  Interest expense                   (105)      (237)      (397)      (705)
  Other, net                         (465)      (270)      (575)        58
  Equity in gain (loss) of
   unconsolidated affiliates           69         38         43          3
                                ---------  ---------  ---------  ---------
Loss from continuing operations
 before income taxes and
 minority interest                 (5,859)    (1,607)    (6,845)    (4,653)
Income tax expense (benefit)         (621)     5,480        538      5,883
                                ---------  ---------  ---------  ---------
Loss before minority interest      (5,238)    (7,087)    (7,383)   (10,536)
Minority interest in income
 (loss) of consolidated
 subsidiaries                         335        (41)       220         (6)
                                ---------  ---------  ---------  ---------
Loss from continuing operations    (4,903)    (7,128)    (7,163)   (10,542)
Loss from discontinued
 operations, net of tax                 -       (378)        11     (4,154)
                                ---------  ---------  ---------  ---------
Net loss                        $  (4,903) $  (7,506) $  (7,152) $ (14,696)
                                =========  =========  =========  =========


Net loss per share - basic and
 diluted
  Continuing operations         $   (0.08) $   (0.12) $   (0.12) $   (0.18)
  Discontinued operations               -      (0.01)         -      (0.07)
                                ---------  ---------  ---------  ---------
Net loss per share - basic and
 diluted                        $   (0.08) $   (0.13) $   (0.12) $   (0.25)
                                =========  =========  =========  =========

Weighted average common shares
 outstanding - Basic               59,333     58,989     59,204     58,852
Stock options and warrants              -          -          -          -
                                ---------  ---------  ---------  ---------
Weighted average common shares
 outstanding - Diluted             59,333     58,989     59,204     58,852
                                =========  =========  =========  =========



The following table sets forth the components of our Consolidated
 Statements of Operations as a percentage of net sales:

                                     Three Month Ended     Year Ended
                                        December 31        December 31,
                                    ------------------  ------------------
                                      2008      2007      2008      2007
                                    --------  --------  --------  --------
Net sales                                100%      100%      100%      100%
Cost of sales                             56%       49%       49%       49%
                                    --------  --------  --------  --------
Gross profit                              44%       51%       51%       51%
                                    --------  --------  --------  --------
Operating expenses:
  Sales and marketing                     22%       29%       22%       28%
  Research and development                 8%       10%        7%        9%
  General and administrative              22%       16%       24%       19%
  Reduction of goodwill                   14%        0%        4%        0%
  (Gain) loss on abandonment of
   lease                                   0%        0%        0%       -1%
                                    --------  --------  --------  --------
       Total operating expenses           66%       55%       57%       55%
                                    --------  --------  --------  --------
Operating loss from continuing
 operations                              -22%       -4%       -6%       -4%
Other income (expense):
  Interest income                          0%        0%        0%        0%
  Interest expense                         0%       -1%        0%       -1%
  Other, net                              -2%       -1%       -1%        0%
  Equity in gain (loss) of
   unconsolidated affiliates               0%        0%        0%        0%
                                    --------  --------  --------  --------
Loss from continuing operations
 before income taxes and
 minority interest                       -24%       -6%       -7%       -5%
Income tax expense (benefit)              -3%       20%        1%        6%
                                    --------  --------  --------  --------
Loss before minority interest            -21%      -26%       -8%      -11%
Minority interest in income (loss)
 of consolidated subsidiaries              1%        0%        0%        0%
                                    --------  --------  --------  --------
Loss from continuing operations          -20%      -26%       -8%      -11%
Loss from discontinued operations,
 net of tax                                0%       -1%        0%       -5%
                                    --------  --------  --------  --------
Net loss                                 -20%      -27%       -8%      -16%
                                    ========  ========  ========  ========

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